Blockchain

The pharmaceutical sector is massive, and within it there are many regulations that must be met. These ensure a product is safe and allowed to be sold to the consumer. All aspects of the production of a drug, including, for example, clinical trials, manufacturing and distribution are controlled by regulations (Lo, 2017). Blockchain offers solutions to increase the validity, reliability and efficiency of drug production by easily ensuring regulations are being met. Furthermore, it also offers the opportunity to tackle one of the biggest problems: the influx of counterfeit drugs entering the supply chain and reaching consumers or patients (Roberts, 2017).

What is blockchain?

Blockchain is a digital decentralised public ledger that is used to log transactions into ‘blocks’ in chronological order (Kacina et al., 2017; Lo, 2017). A blockchain network is controlled by a network of devices spread across the globe. When a transaction occurs between two parties it is recorded on the blockchain and cannot be altered without changing all the blocks that follow, which cannot be done due to the decentralised nature of blockchain. The transactions occur peer to peer, removing the requirement to involve a trusted third party (Halbleib, 2017). Blockchain has no centralised entry point because data is stored across the network of computers worldwide, therefore removing the risk of hacking. All the users of the network can see entries on public blockchains, if they are configured with this feature (Lo, 2017). Therefore, blockchain is tamper proof, reliable, and transparent, which can provide great benefits to the pharmaceutical industry.

Regulatory issues

There are new regulations that will be coming into effect in the near future in the pharmaceutical industry. These new regulations are being put in place by governments worldwide with the aim of decreasing the number of counterfeit pharmaceuticals on the market (Lo, 2017). In the European Union, the Falsified Medicines Directive specifies that pharmaceutical products must be serialised so they can be tracked by February 2019. Similarly, the Drug Supply Chain Security Act was introduced in the US in 2013 by the FDA. This is much like the Falsified Medicines Directive, stipulating that by 2023 there must be an electronic system tracking certain drugs through the supply chain in the United States (FDA, 2017; Lo, 2017).

With these upcoming regulations, all companies that operate within the pharmaceutical supply chain are looking for ways to meet these guidelines, while also improving the security and traceability of the supply chain if possible. Blockchain is a large part of the improvement discussion, as it shows real potential in this field. Leveraging blockchain technology to provide full transparency and immutability throughout the supply chain may be the solution to meeting these new regulations (Bocek et al, 2017; Lo, 2017).

Supply chain

The drug supply chain is a very complicated process involving many transactions, and throughout the entire process adhering to strict regulations is of upmost importance. Currently, manufacturers have little transparency of the supply chain process to track authenticity, which is an issue (Sandner, 2017). Blockchain can provide the means to transform the supply chain in two ways. Firstly, it can harness the Internet of Things (IoT) using smart contracts to improve the security, efficiency and reliability of the supply chain. Secondly, as a product of using the IoT, it can tackle the large problem of stolen or counterfeit pills entering the supply chain and reaching patients (Roberts, 2017).

Smart contracts are contracts that are self-executing, verifying their correctness in relation to a set of predefined rules. Smart contracts utilise blockchain technology to run independently and be decentralised (Bocek et al, 2017). The rules within the smart contracts will be set in accordance to the relevant regulations to ensure good distribution practice (GDP) is achieved. For example, there are strict regulations controlling the distribution practices of environment sensitive pharmaceuticals (Bishara, 2006). Sensors can be used to monitor the temperature of each package during transport. The data recorded by the sensors will be transferred to the blockchain where smart contracts assess the temperature according to the predefined rules set in line with GDP regulations. Therefore, it can be ensured GDP regulations are met by self-executing smart contracts, reducing the number of intermediaries required, therefore reducing the costs and possible data manipulation chances (Bocek et al, 2017).

A worldwide increase of counterfeit medicine sales by 90% over five years was estimated by The World Health Organisation (WHO, 2010), with a worldwide sale estimate of $75 Billion in 2010. This is clearly a problem, with useless or potentially harmful products reaching patients that may require lifesaving medication. The counterfeit drug problem is particularly an issue in developing countries due to the costs of legitimate drugs being too high. It is estimated 10-30% of the drugs sold in many developing countries are counterfeit (WHO, 2010; Sandner, 2017; Lo, 2017). Within the pharmaceutical supply chain the drugs being transported change ownership many times, which makes the process very complex. Manufacturers and customers alike are unable to verify the authenticity of the finished product when it reaches the customer due to the lack of transparency (Sandner, 2017). This therefore leaves room for the process to be exploited and for the counterfeit drugs to reach the market.

The blockchain solution to this issue works together with the GDP regulation adherence previously outlined. The blockchain would enable consumers to track the path of their product throughout the entire supply chain and therefore verify its authenticity. This would be made possible by packages being logged every time they change hands. A barcode would be scanned which would enter the transaction onto the immutable blockchain. A product could be therefore scanned at any time by a customer or a producer to view the entire distribution history on the blockchain. It is fully transparent and cannot be changed, and all inputs will only be possible by trusted parties (Sandner, 2017). Another benefit of the system is that if there is disruption in a part of the supply chain, the public ledger of the blockchain provides an efficient and reliable means to track where the issue arose and who was in possession of the shipment at the time (Roberts, 2017).

Clinical trials

Currently, the credibility of the outcome from clinical trials is degraded due to a number of issues. It is estimated 50% of clinical trials are not reported, and it is not uncommon for selective data publication to take place (Rabah, 2017; Nugent et al., 2016). The WHO and MHRA have attempted to introduce legislation enforcing sharing of trial methodology and results, however there are no current solutions found that will effectively enforce these rules.

Smart contracts operating on the blockchain could be introduced to act as unbiased and trusted administrators, which would provide transparent results from clinical trials which are fully immutable (Nugent et al., 2016). With this in place, the results from the trial would be automatically recorded to the blockchain, where they cannot be altered. This would eradicate any issues that arise from data management and presentation from trials. As a result, implementing a blockchain system would allow medical professionals to be better informed and make decisions based on increase trust due to the credibility of the trials (Nugent et al., 2016).

Additional possible applications

In research and development, information asymmetry is common between firms and investors, which prevents investors from making well informed decisions and increases uncertainty (Sandner, 2017). In the research and development stage, the funding is very important. Currently, Schöner (2017) estimates information asymmetry is potentially leading to abnormal returns of 4-6% annually in the pharmaceutical sector, which can negatively affect funding opportunities. Blockchain provides the opportunity to provide early investors increased information access with more transparency (Zhong et al, 2007; Sandner, 2017).

In the pharmaceutical industry, there can be sensitive documents that must be held by a third party, but the third party is not able to access these documents. Blockchain can facilitate this process with advanced encryption, ensuring the information held by the third party securely (Kacina et al., 2017).

Conclusions

Blockchain can provide multiple improvements to various aspects of the pharmaceutical industry. Currently, integration of blockchain into the supply chain appears to provide a lot of benefits. It would ensure that upcoming regulations could be met, that transparency of the supply chain increased, that costs are reduced over time by simplifying the process, and it would also tackle the large issue of counterfeit pharmaceuticals. On top of this, blockchain can be used to increase the transparency in clinical trials, research and development and third-party document management.